What is green finance, after all? – Exploring definitions and their implications under the Brazilian biofuel policy (RenovaBio)

Abstract

Climate change concerns and energy transitions are currently addressing not only energy technologies and innovations to decarbonize economies, but also financial mechanisms to enable such transitions. The concepts of green finance and green investment have expanded in recent years, bringing perspectives to support sustainable projects. In this study, we examine the scientific research in green finance to identify advances, main topics, and policy recommendations. We then explore how green financing can play an important role in supporting the development and implementation of biofuel projects in Brazil. The biofuel policy (RenovaBio) established a carbon market the so-called “Decarbonization Credits” (CBIOs), which is a financial instrument designed to incentivize the production and use of sustainable biofuels and reduce greenhouse gas emissions. The findings suggest that green finance needs to advance with a clear definition of their requirements and standards not to fund non-green projects and projects that overlook social and environmental sustainability for economic benefits, and to enable investors to better assess risks and opportunities of their investments. Regarding green finance for biofuel, while some studies suggest that biofuels could play a role in the transition to a green economy, others warn of the environmental costs associated with large-scale production, which can lead to negative impacts on biodiversity, and land-water use. It is expected that the green finance issue in Brazil will find fertile ground in the biofuel sector. However, this will depend on sustainable agriculture practices, as well as on designing the RenovaBio program in such a way that is transparent, accountable, and socially and environmentally responsible.